What do rotten oranges have to do with hiring a contractor?
You’re at the grocery store. You’re buying oranges. Single oranges are a dollar a piece. A bag of ten oranges is eight dollars. How do you decide which is the better deal?
There are a couple metrics you can consider: price per orange (the bag is a better deal) or cost per unit (a single orange will cost you less than a single bag).
But the most important metric has nothing to do with cost. The first question you should ask is how many oranges do I need?
This isn’t so different from hiring a contractor for your business.
Most of us can run through a simple cost-benefit analysis on small purchases like oranges without thinking about it. But when it comes to purchases that seem more complex, we frequently get distracted by the numbers being pitched to us, or look outside to our friends or people we read about as models for the right amount to spend.
We fail to consider what our actual needs are and we overspend as a result.
Recently, I was discussing marketing contractors with a friend. A few years back, my friend had hired a high-end solo contractor for PPC management who charged $50 an hour. For such a high price, my friend assumed she’d hired someone who could get her top-of-the-lines results. In reality, $6000 a month turned out to be way too expensive for the size of my friend’s business. My friend eventually freed the contractor for other client opportunities (read: fired) because mathematically the returns just weren’t there.
Fast forward and my friend hired a new contractor who she’s been working with for two years now. Not only has this contractor had great job performance, she charges about 50% less than the first contractor did. Even if my friend had seen a 25% drop in performance, her ROI would have still increased by 25% by making the switch.
Ad spend and the importance of pay-per-click grew have grown for her business, meaning management fees have grown somewhat as the business has grown. However, the growth on both sides of the equation happened organically, not backwards. Unlike the first contractor, this contractor didn’t expect to get paid big until they proved they could perform big.
Meanwhile, I was trying to make a decision on contracting with an affiliate management company. One promised larger returns and claimed that working with a competitor of ours was a huge benefit, since it proved they understood the industry. Their pricing was approximately $6000 a month. Another company offered a “start-up” package of $1000 a month.
In this case it was tempting to see the more expensive option as a better deal. The size of their package meant they could promise larger gross returns. It was easy to want to compare ourselves to our competitor and assume we would necessarily need the same thing.
In reality though, looking at where we were as a company at that moment made it clear that the smaller, less expensive option was the better deal. It allowed us to dip our toes in the water and see if the affiliate medium was a profitable acquisition source for the company before making a major investment. Even if we failed, it would be a relatively cheap mistake.
With the amount we would have spent for the other contractor, it would have taken years for us to see real net returns (assuming they even performed as promised). In the long run, a smaller company promising smaller returns was a more efficient and effective use of our time and capital.
Mind you, this isn’t to say you should always go with the cheaper option. The point is that there are multiple facets to determining a good value beyond the numbers you’re being pitched. If you want a good value for you, you need to figure out what you (not anyone else) actually need. You can find providers at all points on the spectrum when it comes to price and value generated. No one answer is right for everyone.
Naturally hindsight is 20/20 and you won’t always pick the right person the first time around. But getting better at accurately assessing what defines a good deal for you is possible. Here are a few questions you should always answer before looking for outside help:
(1) What are your need-to-haves and nice-to-haves? Elements of a contractor’s package may sound appealing, but do you need them right now?
(2) How much are you willing to invest? (And how much are you willing to lose)? ROI always sounds great during a pitch, but if the contractor fails to deliver, what will it cost you?
(3) How are you measuring success? You and the contractor need to be on the same page about what metrics are most important to you.
(4) What’s your timeline? How long can you wait to see returns? Establishing this now will keep you from falling into the sunk costs fallacy. If you don’t see the results you want in your timeline, cut your losses and move on.
The best deal is the one where you pay for only what you need.